Corporate & Securities Law

Warning costs Ericsson $15 billion and a suit

By Werner R. Kranenburg

About a fortnight ago Telefonaktiebolaget LM Ericsson (OMX: ERIC A, B; NASDAQ: ERIC; LSE: ERI) of Sweden issued a press release stating that it expects a Q3 operating income of SEK 5.6 billion (?609 million, US$879 million), 39% lower than than the previous quarter (Q2) and 36% lower than the same quarter last year (Q3 2006). “This is below the company’s own as well as current market expectations and primarily a result of an unexpected shift in the business mix.”

That announcement was followed by the publication of its Q3 report (press release, press conference webcast) and the filing of a class action in the Southern District of New York by a private plaintiff, represented by Coughlin Stoia Geller Rudman & Robbins LLP. (Financial Times) From the complaint:

After these results were issued, on October 16, 2007, Ericsson’s stock collapsed to close at $31.33 per share, a decline of 24% [or US$15 billion in market value], on volume of 42.7 million shares. In fact, by early September 2007, Defendants had a good visibility into the quarterly results, which visibility improved each day of the Class Period [11 September 2007 - 15 October 2007], but defendants concealed the declining results from the investing public that they would have to make the cuts to the Company’s outlook until October 16, 2007.

The FT has this Ericsson statement in response to the action:

We are very sorry to hear about this class-action suit. We follow the rules as stated by the [Swedish] stock exchange as well as in our stock exchange contract. At the moment we are reviewing the class-action suit and any further comment will be decided upon later.

The deadline to move the Court for lead plaintiff status is no later than 60 days from the date the case was filed, 29 October 2007. (Subscribe to WV&Z)

What’s more: Ericsson has confirmed with WV&Z that it has no further comment on the action than the statement in the FT as above.

What’s more, as of 20 November: Indications are that the following firms are looking into filing their own complaints:

• Brodsky & Smith LLC
• Brower Piven PC
• Schatz Nobel Izard PC
• Stull, Stull & Brody

Full post as published by With Vigour and Zeal on October 31, 2007 (boomark / email).